Cell therapy is a promising treatment strategy for patients with type 1 diabetes. Porcine pancreas-derived mesenchymal stromal cells (PMSCs) have emerged as one of the most widely used cell resources owing to their high proliferative capacity and multi-lineage differentiation potential. Although the induction efficiency and insulin production of induced insulin-producing cells (IPCs) derived from PMSCs have been estimated, these have primarily focused on the function of induced cells and alterations in related gene expression levels. However, morphological analyses and biological characterization of PMSCs and induced IPCs have not been conducted. Therefore, the present study aimed to optimize an induction protocol, resulting in a 78.92% induction rate. The present study investigated the biological characteristics of PMSCs and optimized a simple but functional three-step protocol to transform PMSCs into IPCs. PMSCs were isolated from 2-3-month-old Bama miniature pig embryos, which were then subcultured to passage 16. The surface markers pancreatic and duodenal homeobox 1, NK6 homeobox 1, Vimentin, Nestin, CD73, CD90, neurogenin 3, CD45 and CD34 were detected by immunofluorescence staining or flow cytometry. Proliferative capacity was evaluated by constructing growth curves of cells at three different passages. Functional differentiation was assessed by morphological observation, dithizone staining, and immunofluorescence staining of C-peptide, insulin, NK6 homeobox 1 and glucagon. The production of insulin by differentiated cells was also analyzed by performing ELISAs. The results demonstrated that differentiated cells were distributed with an islet-like structure, expressed specific markers C-peptide and insulin, and displayed glucose responsiveness. The results of the present study demonstrated that PMSCs were functionally induced into IPCs with the optimized three-step protocol, which may serve as a potential cell therapy strategy to widen the availability and promote the clinical application of cell therapy.